FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 17262
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S.Y. BANCORP, INC.
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A(Exact name of registrant as specified in its charter)
Kentucky 61-1137529
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(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
1040 East Main Street, Louisville, Kentucky, 40206
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(Address of principal executive offices)
(Zip Code)
(502) 582-2571
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value -- 1,633,242
shares issued and outstanding at May 1, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of S.Y. Bancorp, Inc. and
Subsidiary (Stock Yards Bank & Trust Company) are submitted herewith:
--Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
--Consolidated Statements of Income
for the three months ended March 31, 1996 and 1995
--Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995
--Notes to Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
March 31, 1996 December 31, 1995
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(In thousands, except share data)
Assets
________
Cash and due from banks $ 11,766 $ 16,229
Mortgage loans held for sale 7,404 3,910
Securities available for sale (amortized
cost $9,388 in 1996 and $15,117 in 1995) 9,668 15,545
Securities held to maturity (approximate market
value $34,712 in 1996 and $27,055 in 1995) 34,777 26,710
Loans 258,668 252,978
Less
Allowance for loan losses 4,680 4,507
Unearned income 28 41
Net loans 253,960 248,430
Premises and equipment 7,703 6,817
Accrued interest receivable 1,992 2,192
Other assets 4,612 4,521
TOTAL ASSETS $331,882 $324,354
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Liabilities and Stockholders' Equity
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Deposits
Non-interest bearing $ 46,988 $ 48,460
Interest bearing 236,987 232,133
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Total deposits 283,975 280,593
Securities sold under agreements
to repurchase and federal funds purchased 13,679 12,349
Short-term borrowings 2,781 745
Accrued interest payable and
other liabilities 2,476 2,446
Subordinated debentures 607 607
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TOTAL LIABILITIES 303,518 296,740
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Common stock, no par value; 3,000,000
shares authorized; 1,633,142 and
1,627,334 shares issued and
outstanding in 1996 and 1995, respectively 5,442 5,423
Surplus 13,328 13,245
Retained earnings 9,409 8,664
Net unrealized gain
on securities available for sale 185 282
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TOTAL STOCKHOLDERS' EQUITY 28,364 27,614
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $331,882 $ 324,354
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See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended March 31, 1996 and 1995
1996 1995
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(In thousands, except share and per share data)
Interest income
Loans $5,858 $4,912
Federal funds sold 49 149
Mortgage loans held for sale 81 26
U.S. Treasury and Federal agencies 522 550
Obligations of states and political
subdivisions 96 50
Other securities 21 21
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Total interest income 6,627 5,708
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Interest expense
Deposits 2,705 1,986
Securities sold under agreements
to repurchase and federal funds purchased 151 191
Short-term borrowings 20 30
Subordinated debentures 11 11
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Total interest expense 2,887 2,218
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Net interest income 3,740 3,490
Provision for loan losses 180 220
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Net interest income after
provision for loan losses 3,560 3,270
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Non-interest income
Trust income 531 402
Service charges on deposit accounts 353 290
Gains on sales of mortgage loans
held for sale 195 108
Gains on sales of securities
available for sale 35 -
Other 120 98
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Total non-interest income 1,234 898
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Non-interest expenses
Salaries and employee benefits 1,833 1,525
Net occupancy expense 232 174
Furniture and equipment expense 345 260
FDIC insurance 1 124
Other 792 700
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Total non-interest expenses 3,203 2,783
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Income before income taxes 1,591 1,385
Income tax expense 519 455
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Net income $1,072 $ 930
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Net income per share
Primary and fully diluted $ .64 $ .56
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Average common shares
Primary 1,676,375 1,649,071
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Fully diluted 1,680,659 1,649,778
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See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 and 1995
1996 1995
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(In thousands)
Operating Activities
Net income $ 1,072 $ 930
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 180 220
Depreciation, amortization and accretion, net 258 169
Gain on sales of mortgages held for sale ( 195) ( 108)
(Increase) decrease in mortgage loans held for sale ( 3,299) 1,142
(Increase) decrease in accrued interest receivable 200 ( 82)
(Increase) decrease in other assets 10 ( 304)
Increase (decrease) in accrued interest payable ( 215) 164
Increase (decrease) in other liabilities 245 664
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Net cash provided (used) by operating
activities ( 1,744) 2,795
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Investing Activities
Net (increase) decrease in federal funds sold - 5,500
Purchases of securities held to maturity (11,503) (10,897)
Proceeds from maturities of securities
held to maturity 3,301 5,440
Maturities of securities available for sale 1,010 -
Proceeds from sales of securities
available for sale 4,850 -
Net (increase) decrease in loans ( 5,710) ( 9,223)
Purchases of premises and equipment ( 1,140) ( 463)
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Net cash provided (used) by investing
activities ( 9,192) ( 9,643)
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Financing Activities
Net increase (decrease) in deposits 3,382 13,094
Net increase (decrease) in securities sold under
agreements to repurchase 1,330 ( 1,202)
Net increase (decrease) in short-term borrowings 2,036 ( 1,798)
Exercise of stock options 52 -
Cash dividends paid ( 327) ( 259)
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Net cash provided (used)
by financing activities 6,473 9,835
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Net increase (decrease) in cash and cash equivalents 4,463 2,987
Cash and cash equivalents at beginning of period 16,229 10,350
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Cash and cash equivalents at end of period $11,766 $13,337
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Income tax payments were $0 in 1996, and $0 in 1995.
Cash paid for interest was $3,102,000 in 1996, and $2,382,000 in 1995.
Noncash investing and financing activities aggregated $50,000 in 1996 and
$36,000 in 1995.
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
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The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements of S.Y. Bancorp, Inc. and Subsidiary reflect all adjustments
(consisting only of adjustments of a normal recurring nature) which are, in
the opinion of management, necessary for a fair presentation of financial
condition and results of operations for the interim periods.
The consolidated financial statements include the accounts of S.Y.
Bancorp, Inc. and its wholly owned subsidiary, Stock Yards Bank & Trust
Company. All significant intercompany transactions have been eliminated in
consolidation.
Effective January 1, 1996, Bancorp adopted three new accounting
pronouncements. SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," requires long-lived
assets such as bank premises and equipment and real estate acquired on
satisfaction of debt, be reviewed for appropriate valuation. SFAS No. 122,
"Accounting for Mortgage Servicing Rights," applies to all companies with
mortgage banking operations and requires capitalization of mortgage
servicing rights, regardless of whether they were acquired through purchase or
origination activities. The implementation of these accounting standards has
not had a significant impact on the Company's financial position or results of
operations. SFAS No. 123, "Accounting for Stock-Based Compensation,"
introduces the use of a new fair value based method of accounting for
stock-based compensation arrangements, but permits companies to retain the
current intrinsic value based method prescribed by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
Bancorp intends to continue using the intrinsic value based method and
will provide expanded disclosures related to the fair value method of
accounting for stock-based compensation. These disclosures are not required
for interim financial statements.
A description of other significant accounting policies is presented in the
Consolidated Financial Statements for the year ended December 31, 199
included in S.Y. Bancorp, Inc.'s Annual Report, and its Form 10-K for the
year then ended.
Interim results for the three month period ended March 31, 1996 are not
necessarily indicative of the results for the entire year.
(2) Allowance for Loan Losses
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An analysis of the changes in the allowance for loan losses for the
three months ended March 31 follows (in thousands):
1996 1995
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Beginning balance $4,507 $3,649
Provision for loan losses 180 220
Loans charged off ( 22) ( 39)
Recoveries 15 18
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Ending balance $4,680 $3,848
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Information regarding impaired loans at March 31, 1996 follows:
Recorded investment in impaired loans $ 859,000
Impaired loans with Statement 114 valuation allowance $ 242,000
Amount of Statement 114 valuation allowance $ 227,000
Amount of impaired loans without Statement 114
valuation allowance $ 617,000
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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This item discusses the results of operations for S.Y. Bancorp, Inc.
("Bancorp"), and its subsidiary, Stock Yards Bank & Trust Company
("the Bank") for the three months ended March 31, 1996 and compares those
periods with the same periods of the previous year. Unless otherwise
indicated, all references in this discussion to the "Bank" include Bancorp.
In addition, the discussion describes the significant changes in the
financial condition of the Bank that have occurred during the first three
monthsof 1996 compared to December 31, 1995. This discussion should be read
in conjunction with the financial statements and accompanying notes presented
in Part I, Item 1 of this report.
A. RESULTS OF OPERATIONS
Net income of $1,072,000 for the three months ended March 31, 1996
increased $142,000 or 15.3% from $930,000 for the comparable 1995 period.
Net income per share on a fully diluted basis was $.64 for the first quarter
of 1996, an increase of 14.3% from the $.56 for the same period in 1995.
Return on average assets and return on average stockholders' equity was 1.34%
and 15.30%, respectively, for the first quarter of 1996, compared to 1.38%
and 15.21%, respectively, for the same period in 1995.
The following paragraphs provide an analysis of the significant factors
affectingoperating results and financial condition.
Net Interest Income
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In thousands except percentages
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Three Months Ended
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March 31
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1996 1995
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Interest income $ 6,627 $ 5,708
Tax equivalent adjustment 51 35
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Interest income, tax
equivalent basis 6,678 5,743
Total interest expense 2,887 2,218
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Net interest income, tax
equivalent basis (1) $ 3,791 $ 3,525
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Net interest spread (2),
annualized 4.10% 4.62%
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Net interest margin(3),
annualized 5.03% 5.54%
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Notes:
(1) Net interest income, the most significant component of the Bank's
earnings, is total interest income less total interest expense. The
level of net interest income is determined by the mix and volume of
interest earning assets, interest bearing deposits and borrowed funds,
and by changes in interest rates.
(2) Net interest spread is the difference between the taxable equivalent
rate earned on interest earning assets less the rate expensed on
interest bearing liabilities.
(3) Net interest margin represents net interest income on a taxable
equivalent basis as a percentage of average interest earning assets.
Net interest margin is affected by both the interest rate spread and
the level of non-interest bearing sources of funds, primarily
consisting of demand deposits and stockholders' equity.
Fully taxable equivalent net interest income of $3,791,000 for the
three months ended March 31, 1996 increased $266,000 or 7.5% from $3,525,000
for the same period last year. Net interest spread and net interest margin
were 4.10% and 5.03%, respectively, for the first quarter of 1996 and 4.62%
and 5.54%, respectively, for the first quarter of 1995.
Average earning assets increased $28,882,000, or 10.5% to $303,183,000
for the first three months of 1996 compared to 1995. Average interest
bearing liabilities increased $39,748 or 19.4% to $244,157,000 for the first
three months of 1996 compared to 1995. Interest rates have declined steadily
since mid 1995. As discussed in the second following paragrapn, the Bank is
asset sensitive. Loans, the Bank's largest interest bearing asset, reprice
immediately with a change in prime rate; whereas deposits, the Bank's largest
interest bearing liability, do not respond as quickly. Also, the Bank is
experiencing loan growth; however, the average rate earned on these loans is
decreasing as rates fall. Thus, net interest spread and margin are
decreasing.
Interest rate sensitivity has a major impact on the earnings of the
Bank. As interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities. Proper asset
and liability management involves the matching of interest sensitive assets
and liabilities to reduce interest rate risk. The Bank manages its interest
rate risk by primarily making variable rate loans. The Bank does, however,
make fixed rate loans which it matches, along with investment securities,
against longer term fixed rate time deposits. At March 31, 1996, interest
earning assets repricing within one year exceeded interest bearing
liabilities repricing within one year. A position of interest earning assets
repricing more quickly than interest bearing liabilities generally allows for
a positive impace in periods of rising interest rates and a negative impact
in periods of declining interest rates. The cumulative interest sensitivity
gap through one year was approximately 2.9% and Bancorp has the ability to
effectively manage its interest sensitivity gap to control the degree of
interest rate risk on the balance sheet.
Provision for Loan Losses
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The allowance for loan losses is based on management's continuing review of
individual credits, recent loss experience, current economic conditions, the
risk characteristics of the various categories of loans, and other such
factors that, in management's judgement, deserve current recognition in
estimating loan losses.
An analysis of the changes in the allowance for loan losses and selected
ratios follows:
Three months ended
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March 31
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(In thousands except percentages)
1996 1995
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Balance at January 1 $ 4,507 $ 3,649
Provision for loan losses 180 220
Loan charge-offs, net of recoveries ( 7) (21)
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Balance at March 31 $ 4,680 $ 3,848
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Average loans, net of unearned income $255,318 $210,255
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Provision for loan losses to average loans (1) .28% .42%
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Net loan charge-offs (recoveries)
to average loans (1) .01% .04%
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Allowance for loan losses to average loans 1.83% 1.83%
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Allowance for loan losses to period-end loans 1.81% 1.78%
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(1) Amounts annualized
Non-interest Income and Expenses
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The following table sets forth the major components of non-interest
income and expenses for the three months ended March 31, 1996 and 1995.
In thousands
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Three Months Ended
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March 31
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1996 1995
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Non-interest income
Trust income $ 531 $ 402
Service charges on
deposit accounts 353 290
Gains on sales of mortgage
loans held for sale 195 108
Gains on sales of securities
available for sale 35 -
Other 120 98
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Total non-interest income $1,234 $ 898
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Non-interest expenses
Salaries and employee
benefits $1,833 $1,525
Net occupancy expense 232 174
Furniture and equipment
expense 345 260
FDIC insurance 1 124
Other 792 700
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Total non-interest
expenses $3,203 $2,783
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Non-interest income increased $336,000, or 37.4%, for the first
quarter of 1996, compared to the same period in 1995. Trust income
increased $129,000 or 32.1% in the first quarter of 1996, as compared to the
same period in 1995. Trust assets under management at March 31, 1996 were
$359,000,000 as compared to $343,000,000 at December 31, 1995.
Service charges on deposit accounts increased $63,000 or 21.7% in the
first quarter of 1996, as compared to the same period in 1995. Growth in
deposit accounts spurred by the introduction of new deposit products and by
opening of new branch offices has presented opportunities for increased fee
income in this area. Additionally, rates for some deposit services were
raised in the second quarter of 1995.
Gains on sales of mortgage loans were $195,000 in the first quarter of
1996 compared to $108,000 in 1995. The Bank operates a mortgage banking
division which originates residential mortgage loans and sells the loans in
the secondary market. As interests rates decreased in the second half of
1995 and again in February, 1996, the volume of loans originated and sold has
increased.
Gains on sales of securities available for sale during the first quarter
of 1996 as management sold lower yielding, shorter term securities for
intermediate term, higher yielding securities.
Other non-interest income increased $22,000 or 22.4% in the first
quarter of 1996 compared to 1995. Numerous factors contribute to this
increase including highersafe deposit box and service fees and growth in
credit card merchant fees.
Non-interest expenses increased $420,000 or 15.1% for the first
quarter of 1996 compared to the same period in 1995. Salaries and employee
benefits increased $308,000, or 20.2%, for the first quarter of 1996 compared
to the same period in 1995. These increases arose in part from regular salary
increases. Also, employees were added throughout 1995 with the opening of
new branches. The Bank had 201 full time equivalent employeees as of March 31,
1996 and 169 full time equivalent employees as of March 31, 1995. Net
occupancy expense increased $58,000 or 33.3% in the first quarter of 1996, as
compared to 1995. Furniture and equipment expense increased $85,000, or
32.7%, for the first quarter of 1996 compared to 1995. These increases are
largely due to the opening of new banking centers. In 1995 the Bank opened
its Outer Loop banking center and Elizabethtown loan production office. In
the first quarter of 1996, a loan production office in Lexington was opened.
Expansion in facilities and technology resulted in increased occupancy and
equipment expenses. FDIC insurance expense decreased by almost 100% in the
first quarter of 1996 as compared to 1995. During the third quarter of 1995,
the FDIC determined the Bank Insurance Fund had been replenished effective
May, 1995. Accordingly, they reduced the premium paid by well capitalized
banks from 23 cents per $100 of deposits to 4 cents per $100 of deposits.
Additionally, they refunded over payments of deposit insurance premiums.
Subsequently the FDIC has reduced its assessment on well capitalized banks to
the minimum assessment payment allowed of $1,000 per semiannual period. The
Bank's FDIC expense has been reduced accordingly. Other non-interest expenses
have increased 13.1% in the first quarter as compared to 1995. Again, these
increases are reflective of the Bank's expansion.
Income Taxes
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Bancorp had income tax expense of $519,000 for the first three months
of 1996, compared to $455,000 for the same period in 1995. The effective
rate was 32.6% in 1996 and 32.8% in 1995.
B. FINANCIAL CONDITION
Total Assets
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Total assets increased $7,528,000 from December 31, 1995 to March 31,
1996. Average assets for the first three months of 1996 were $321,069,000.
Total assets at March 31, 1996 increased $46,448,000 from March 31, 1995,
representing a 16.3% increase. Since year end, loans have increased
approximately $5.5 million; cash due from banks and federal funds sold
decreased $4.5 million; mortgage loans held for sale increased $3.5 million;
securities available for sale decreased $5.9 million, and securities held to
maturity increased $8.1 million.
Nonperforming Loans and Assets
------------------------------
Nonperforming loans, which include restructured, nonaccrual and loans
past due over 90 days, totaled $859,000 at March 31, 1996 and $1,212,000 at
December 31, 1995. This represents .33% of total loans at March 31, 1996
compared to .48% at December 31, 1995.
Nonperforming assets, which include nonperforming loans and other real
estate owned, (the bank had no other real estate owned at March 31, 1996 or
December 31, 1995) totaled $859,000 at March 31, 1996 and $1,212,000 at
December 31, 1995. This represents .26% of total assets at March 31, 1996
compared to .37% at December 31, 1995.
C. LIQUIDITY
The role of liquidity is to ensure that funds are available to meet
depositors' withdrawal and borrowers' credit demands while at the same time
maximizing profitability. This is accomplished by balancing changes in
demand for funds with changes in the supply of those funds. Liquidity to
meet demand is provided by maturing assets, short-term liquid assets that
can be converted to cash, and the ability to attract funds from external
sources - principally deposits.
The Bank has a number of sources of funds to meet its liquidity needs
on a daily basis. An increase in loans affects liquidity as the repayment of
principal and interest are a daily source of funds. The deposit base,
consisting of relatively stable consumer and commercial deposits, and large
denomination ($100,000 and over) certificates of deposit, is another source
of funds. The majority of these deposits are from long term customers and
are a stable source of funds. In addition, federal funds purchased continue
to be a source of funds. Other sources of funds available to meet daily
needs include the sale of securities under agreements to repurchase and
funds made available under a treasury tax and loan note agreement with the
federal government. Also, the Bank is a member of the Federal Home Loan Bank
of Cincinnati (FHLB). As a member of the FHLB, the Bank has access to credit
products of the FHLB. These credit services provide the Bank with another
source of funds. To date, the Bank has not accessed this source of funds.
Bancorp's liquidity depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At March 31, 1996, the Bank may pay up to
$5,951,000 in dividends to Bancorp without regulatory approval.
D. CAPITAL RESOURCES
At March 31, 1996, stockholders' equity totaled $28,364,000, an increase of
$750,000 or 2.7% since December 31, 1995.
Bank holding companies and their subsidiary banks are required by
regulators to meet risk based capital standards. These standards, or ratios,
measure the relationship of capital to a combination of balance-sheet and
off-balance sheet risks. The values of both balance sheet and off-balance
sheet items are adjusted to reflect credit risks.
At March 31, 1996, Bancorp's tier 1 and total risk based capital ratios
were 11.1% and 12.5%, respectively, compared to 11.1% and 12.0%,
respectively, at December 31, 1995. These ratios exceed the 4.00% tier 1 and
8.0% total risk based capital minimums. A minimum leverage ratio, adopted by
the Federal Reserve Board to assist in the assessment of capital adequacy,
supplements the risk-based capital requirements. The minimum leverage ratio
is 3%; however, most bank holding companies are required to maintain a
minimum in excess of this percentage. Bancorp's leverage ratio at March 31,
1996 was 8.5% compared to 8.4% at December 31, 1995.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(11) Computation of Per Share Earnings
(b) Reports on Form 8-K
The registrant was not required to file a Form 8-K for any of the three
months ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
S.Y. BANCORP, INC.
Date: May 14, 1996 By: David H. Brooks
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David H. Brooks, Chairman
and Chief Executive Officer
Date: May 14, 1996 By: David P. Heintzman
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David P. Heintzman, President
Date: May 14, 1996 By: Nancy B. Davis
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Nancy B. Davis, Senior Vice
President, Treasurer and
Chief Financial Officer